Market strategy: Staying the course, with a gradual approach, is key

The benchmark sensex crashed 1,457 points,or by 2.7%, on Monday on the back of relentless selling by foreign portfolio investors, galloping inflation prints in the US and other major economies, rising interest rates and weak global markets. In fact, since the beginning of May this year, the Sensex has plummeted by 4,214 points, or 7.4%, wiping out around `22 trn of investors’ wealth.

What should investors do?
With increasing market volatility , experts say retail investors must continue with their systematic investment plans (SIPs), focus on asset allocation, and invest in multi-asset funds to diversify and lower their portfolio risk. Experts also say that unlike last year, returns from the equity market are likely to be muted this year and investors should book some profits and avoid heavy buying. However, they could buy small quantities of quality firms on every dip.

Chandraprakash Padiyar, senior fund manager, Tata Mutual Fund, says the near- term markets outlook remains on the muted side given the crude prices, rising food inflation, and increase in interest rates by central banks across the globe. On the positive side, valuations are becoming reasonable and earnings growth for corporate India is likely to be in healthy double digits. “On balance, one would suggest a gradual deployment strategy through the SIP/systematic transfer plan (STP) mode in equity funds over the next 12 months, taking advantage of the correction phase,” he says.

The present market situation can make investors nervous about what they should do with their existing and new investments. This nervousness can lead to wrong investment decisions. Instead, they should stay invested in their planned equity investments – either direct stocks or mutual funds – and avoid panicking.

Harshad Chetanwala, co-founder, MyWealthGrowth.com, says investors must continue with their SIPs in mutual funds, as investing in a falling market will help improve the average cost of investment and, at the same time, avoid the rush to invest the surplus at this stage. “It could be a good strategy to invest 10-15% whenever the market consolidates by 3-5% on consecutive days. The volatility could continue for the coming few months and hence staying the course and investing gradually is the key,” he says.

Asset allocation very important
Experts say investors should focus on asset allocation and build positions in quality companies. Brijesh Damodaran, managing partner, BellWether Associates, says investors are looking at safer havens and safer asset classes and even global cues are showing the way. However, for retail investors, timing the entry in equity investments is an impossible task which can be done only by traders who can take calls, directions and invest accordingly. “Retail investors must have asset allocation in place and if an investor is building a portfolio, buying in dips can be always considered,” he suggests.

Diversification is an important aspect of building a portfolio. It cushions the portfolio against any adverse movements in a single asset class. With the increasing volatility in the equity markets, investors can look at multi-asset mutual funds which help cushion the portfolio against any adverse movement in a single asset class.

These dynamically managed hybrid funds invest in equity, debt and gold. The fund manager rebalances the portfolio depending on the market movements, booking profits regularly from the asset which is performing well and reducing exposure to the underperforming assets. These funds are ideal for those who look for steady long-term returns. Significantly, if an individual investor has to rebalance his portfolio, he needs to pay brokerage and taxes, but a multi-asset fund does not incur such costs.

WHAT TO KEEP IN MIND
Book some profits and avoid heavy buying
Stay invested in planned equity investments – either direct stocks or mutual funds
As volatility could continue, investing gradually is the key
Focus on asset allocation and build positions in quality firms
Keep in mind diversification while building a portfolio